UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ________________ to ________________
Commission File No. 1-11778 I.R.S. Employer Identification No. 98-0091805
ACE LIMITED
(Incorporated in the Cayman Islands)
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08
Bermuda
Telephone 441-295-5200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES ___X___ NO ________
The number of registrant's Ordinary Shares ($0.041666667 par value)
outstanding as of August 11, 2000 was 217,922,847.
ACE LIMITED
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION
- - - ------------------------------ Page No.
-------
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 2000 (Unaudited) and December 31, 1999 3
Consolidated Statements of Operations (Unaudited)
Three Months and Six Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Shareholders' Equity (Unaudited)
Six Months Ended June 30, 2000 and 1999 5
Consolidated Statements of Comprehensive Income (Unaudited)
Six Months Ended June 30, 2000 and 1999 6
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2000 and 1999 7
Notes to Interim Consolidated Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 19
Part II. OTHER INFORMATION
- - - ---------------------------
Item 6. Exhibits and Reports on Form 8-K 38
2
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30 December 31
2000 1999
---- ----
(Unaudited)
(in thousands of U.S. Dollars,
except share
and per share data)
Assets
Investments and cash
Fixed maturities available for sale, at fair value
(amortized cost - $9,801,608 and $10,080,402) $ 9,602,324 $ 9,849,803
Equity securities, at fair value (cost - $563,555 and $780,558) 642,822 933,314
Short-term investments, at fair value
(amortized cost - $1,098,778 and $1,194,956) 1,098,952 1,192,875
Other investments, at fair value (cost - $476,661 and $303,714) 480,531 300,311
Cash 684,577 599,232
----------------- ----------------
Total investments and cash 12,509,206 12,875,535
Accrued investment income 168,066 170,755
Insurance and reinsurance balances receivable 2,249,002 2,018,788
Accounts and notes receivable 510,197 533,863
Reinsurance recoverable 8,644,508 8,840,081
Deferred policy acquisition costs 579,286 514,425
Prepaid reinsurance premiums 741,594 580,244
Goodwill 2,877,449 2,822,718
Deferred tax assets 1,004,320 916,184
Other assets 921,220 850,295
----------------- ----------------
Total assets $ 30,204,848 $ 30,122,888
================= ================
Liabilities
Unpaid losses and loss expenses $ 16,675,710 $ 16,460,247
Unearned premiums 2,986,503 2,428,828
Premiums received in advance 66,711 63,759
Insurance and reinsurance balances payable 1,253,597 1,735,956
Contract holder deposit funds 184,155 201,079
Accounts payable, accrued expenses and other liabilities 1,455,795 1,684,725
Dividend payable 31,197 23,921
Short-term debt 351,851 1,074,585
Long-term debt 1,424,228 1,424,228
Trust preferred securities 875,000 575,000
----------------- ----------------
Total liabilities 25,304,747 25,672,328
----------------- ----------------
Commitments and contingencies
Mezzanine Equity
FELINE PRIDES
311,050 -
----------------- ----------------
Shareholders' Equity
Ordinary Shares ($0.041666667 par value,
300,000,000 shares authorized; 217,654,930 and
217,460,515 shares issued and outstanding) 9,069 9,061
Additional paid-in capital 2,199,165 2,214,989
Unearned stock grant compensation (26,494) (28,908)
Retained earnings 2,552,532 2,321,570
Accumulated other comprehensive loss (145,221) (66,152)
----------------- ----------------
Total shareholders' equity 4,589,051 4,450,560
----------------- ----------------
Total liabilities, mezzanine equity and shareholders' equity $ 30,204,848 $30,122,888
================= ================
See accompanying notes to interim consolidated financial statements
3
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended June 30, 2000 and 1999
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
------------------------------------------------------------------------------
(in thousands of U.S. dollars, except per share data)
Revenues
Gross premiums written $ 1,950,067 $ 508,999 $ 3,947,027 $ 944,494
Reinsurance premiums ceded (736,182) (116,730) (1,276,120) (211,560)
------------- ------------- ------------- -------------
Net premiums written 1,213,885 392,269 2,670,907 732,934
Change in unearned premiums (46,049) (91,998) (398,265) (147,396)
------------- ------------- ------------- -------------
Net premiums earned 1,167,836 300,271 2,272,642 585,538
Net investment income 181,029 84,794 363,964 171,278
Net realized gains (losses) on
investments (30,044) 25,307 26,696 42,561
------------- ------------- ------------- -------------
Total revenues 1,318,821 410,372 2,663,302 799,377
------------- ------------- ------------- -------------
Expenses
Losses and loss expenses 768,111 255,471 1,483,594 412,352
Policy acquisition costs 163,728 31,471 314,370 65,824
Administrative expenses 182,864 41,149 376,872 95,799
Amortization of goodwill 19,324 4,514 38,970 8,934
Interest expense 53,947 4,147 111,136 8,677
------------- ------------- ------------- -------------
Total expenses 1,187,974 336,752 2,324,942 591,586
------------- ------------- ------------- -------------
Income before income taxes 130,847 73,620 338,360 207,791
Income tax expense 16,919 4,498 49,919 9,650
------------- ------------- ------------- -------------
Net income $ 113,928 $ 69,122 $ 288,441 $ 198,141
============= ============= ============ =============
Basic earnings per share $ 0.50 $ 0.36 $ 1.30 $ 1.02
============= ============= ============ =============
Diluted earnings per share $ 0.49 $ 0.35 $ 1.28 $ 1.00
============= ============= ============ =============
See accompanying notes to interim consolidated financial statements
4
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
Six Months Ended
June 30
2000 1999
------------- -------------
(in thousands of U.S. Dollars)
Ordinary Shares
Balance at beginning of period $ 9,061 $ 8,070
Ordinary Shares issued 17 -
Cancellation of Ordinary Shares (28) -
Exercise of stock options 18 14
Issued under Employee Stock Purchase Plan 1 2
------------- -------------
Balance at end of period 9,069 8,086
------------- -------------
Additional paid-in capital
Balance at beginning of period 2,214,989 1,767,188
Ordinary Shares issued 6,467 -
Cancellation of Ordinary Shares (19,007) -
Exercise of stock options 5,773 5,202
Issued under Employee Stock Purchase Plan 821 1,420
Cancellation of restricted stock award - (100)
FELINE PRIDES issuance costs (9,878) -
------------- -------------
Balance at end of period 2,199,165 1,773,710
------------- -------------
Unearned stock grant compensation
Balance at beginning of period (28,908) (15,087)
Stock grants awarded (1,502) (1,374)
Stock grants forfeited - 312
Amortization 3,916 4,013
------------- -------------
Balance at end of period (26,494) (12,136)
------------- -------------
Retained earnings
Balance at beginning of period 2,321,570 2,040,664
Net income 288,441 198,141
Dividends declared on Ordinary Shares (52,154) (38,790)
Dividends declared on FELINE PRIDES (5,325) -
------------- -------------
Balance at end of period 2,552,532 2,200,015
------------- -------------
Accumulated other comprehensive loss
Net unrealized appreciation (depreciation) on investments
Balance at beginning of period (83,327) 102,271
Change in period, net of tax (37,246) (133,915)
-------------- --------------
Balance at end of period (120,573) (31,644)
-------------- --------------
Cumulative translation adjustments
Balance at beginning of period 17,175 6,471
Net adjustments during period (41,823) (7,021)
-------------- --------------
Balance at end of period (24,648) (550)
-------------- --------------
Accumulated other comprehensive loss (145,221) (32,194)
-------------- --------------
Total shareholders' equity $4,589,051 $3,937,481
============== ==============
See accompanying notes to interim consolidated financial statements
5
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
Six Months Ended
June 30
2000 1999
---- ----
(in thousands of U.S. Dollars)
Net income $ 288,441 $ 198,141
Other comprehensive income (loss)
Net unrealized depreciation on investments
Unrealized depreciation on investments (14,525) (108,065)
Less: reclassification adjustment for net
realized gains included in net income (18,121) (31,229)
---------------- ---------------
(32,646) (139,294)
Cumulative translation adjustments (58,302) (7,021)
---------------- ---------------
Other comprehensive loss, before income taxes (90,948) (146,315)
Income tax benefit related to other
comprehensive income items 11,879 5,379
---------------- ---------------
Other comprehensive loss (79,069) (140,936)
---------------- ---------------
---------------- ---------------
Comprehensive income $ 209,372 $ 57,205
================ ===============
See accompanying notes to interim consolidated financial statements
6
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
Six Months Ended
June 30
2000 1999
---- ----
(in thousands of U.S. Dollars)
Cash flows from operating activities
Net income $ 288,441 $ 198,141
Adjustments to reconcile net income to net cash used for operating activities:
Unearned premiums 593,965 141,413
Unpaid losses and loss expenses, net of reinsurance recoverable 359,886 (7,209)
Prepaid reinsurance premiums (161,350) (2,060)
Deferred tax assets 27,884 20,954
Net realized gains on investments (26,696) (42,561)
Amortization of premium/discounts on fixed maturities (2,054) (5,764)
Amortization of goodwill 38,970 8,934
Deferred policy acquisition costs (70,005) (17,378)
Insurance and reinsurance balances receivable (255,843) (111,686)
Premiums received in advance 2,952 3,668
Insurance and reinsurance balances payable (485,207) 79,913
Accounts payable, accrued expenses and other liabilities (250,754) 36,767
Net change in contract holder deposit funds (10,356) -
Other (253,710) (232,062)
-------------- ------------
Net cash flows (used for) from operating activities (203,877) 71,070
-------------- ------------
Cash flows from investing activities
Purchases of fixed maturities (5,246,075) (10,742,772)
Purchases of equity securities (269,119) (126,623)
Sales of fixed maturities 5,542,027 10,531,044
Sales of equity securities 563,473 212,594
Maturities of fixed maturities 38,265 390,762
Net realized gains (losses) on financial futures contracts (7,846) 49,276
Other investments (166,350) (186,982)
Acquisition of subsidiaries, net of cash acquired - (8,087)
---------------- ---------------
Net cash flows from investing activities 454,375 119,212
---------------- ---------------
Cash flows from financing activities
Dividends paid on Ordinary Shares (47,779) (34,874)
Dividends paid on FELINE PRIDES (2,424) -
Repayment of short-term debt (1,011,742) -
Proceeds from short-term debt 289,008 -
Proceeds from issuance of trust preferred securities 300,000 400,000
Proceeds from issuance of FELINE PRIDES 311,050 -
Issuance costs of FELINE PRIDES (9,878) -
Proceeds from exercise of options for Ordinary Shares 5,791 7,143
Proceeds from shares issued under Employee Stock Purchase Plan 821 1,323
---------------- ---------------
Net cash flows (used for) from financing activities (165,153) 373,592
---------------- ---------------
Net increase in cash 85,345 563,874
Cash at beginning of period 599,232 240,556
---------------- ---------------
$ 684,577 $ 804,430
Cash at end of period ================ ===============
See accompanying notes to interim consolidated financial statements
7
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The interim consolidated financial statements, which include the accounts
of the Company and its subsidiaries, have been prepared on the basis of
accounting principles generally accepted in the United States of America
and, in the opinion of management, reflect all adjustments (consisting of
normally recurring accruals) necessary for a fair presentation of results
for such periods. The results of operations and cash flows for any interim
period are not necessarily indicative of results for the full year. These
financial statements should be read in conjunction with the consolidated
financial statements, and related notes thereto, included in the Company's
1999 Annual Report on Form 10-K.
ACE Limited ("ACE" or "the Company") is a holding company incorporated with
limited liability under the Cayman Islands Companies Law and maintains its
business office in Bermuda. The Company provides property and casualty
insurance and reinsurance for a diverse group of customers worldwide. ACE
International also provides accident and health insurance products that are
designed to meet the insurance needs of individuals and groups outside of
the U.S. insurance markets. In addition, through ACE Global Markets, the
Company provides funds at Lloyd's to support underwriting by Lloyd's
syndicates managed by Lloyd's managing agencies, which are indirect wholly
owned subsidiaries of ACE. ACE operates through six business segments: ACE
Bermuda, ACE Global Markets, ACE Global Reinsurance, ACE USA, ACE
International and ACE Financial Services.
On July 2, 1999, the Company completed the ACE INA acquisition. This
acquisition was recorded using the purchase method of accounting and,
accordingly, the consolidated financial statements of the Company include
the results of ACE INA and its subsidiaries from July 2, 1999, the date of
the acquisition. ACE INA is the holding company for ACE USA and ACE
International operating segments.
On December 30, 1999, the Company acquired ACE Financial Services
(previously Capital Re Corporation). This acquisition has been recorded
using the purchase method of accounting and, accordingly, the consolidated
financial statements of the Company include the results of operations of
ACE Financial Services and its subsidiaries from December 30, 1999, the
date of the acquisition.
For the six months ended June 30, 2000, approximately 54 percent of the
Company's written premiums came from companies headquartered in North
America, 23 percent came from companies headquartered in Europe, 7 percent
came from companies headquartered in Australia and New Zealand, 4 percent
came from companies headquartered in Latin America, 7 percent from
companies headquartered in Asia Pacific and 5 percent came from companies
headquartered in other countries.
2. Significant Accounting Policies
a) New accounting pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Deriative Instruments and Hedging Activities"
("SFAS 133"). SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. SFAS 133
is effective beginning in the first quarter of fiscal 2001. The Company is
currently assessing the effect of adopting this statement on its financial
position and operating results, which as yet, has not been determined.
3. Commitments and Contingencies
The Company has considered asbestos and environmental claims and claims
expenses in establishing the liability for unpaid losses and loss expenses.
The estimation of ultimate losses arising from asbestos and environmental
exposures has presented a challenge because traditional actuarial reserving
8
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
methods, which primarily rely on historical experience, are inadequate for
such estimation. The problem of estimating reserves for asbestos and
environmental exposures resulted in the development of reserving methods
which incorporate new sources of data with historical experience. The
Company believes that the reserves carried for these claims are adequate
based on known facts and current law.
4. Restricted Stock Awards
Under the Company's long-term incentive plans, 68,418 Restricted Ordinary
Shares were awarded during the six months ended June 30, 2000, to officers
of the Company and its subsidiaries. These shares vest at various dates
through March 2004.
At the time of grant the market value of the shares awarded under these
grants is recorded as unearned stock grant compensation and is presented as
a separate component of shareholders' equity. The unearned compensation is
charged to income over the vesting period.
5. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share.
- - - ------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
---- ---- ---- ----
(In thousands of U.S. dollars except share and per share data)
Numerator
Net Income $ 113,928 $ 69,122 $ 288,441 $ 198,141
FELINE PRIDES dividend (5,325) - (5,325) -
---------------- ---------------- ---------------- ----------------
Net income available to the holders of
Ordinary Shares $ 108,603 $ 69,122 $ 283,116 $ 198,141
================ ================ ================ ================
Denominator
Denominator for basic earnings per share -
Weighted average shares outstanding 217,257,524 193,784,573 217,058,392 193,871,173
Effect of dilutive securities 4,688,677 3,390,941 3,266,194 3,374,898
---------------- ---------------- ---------------- ----------------
Denominator for diluted earnings per share -
Adjusted weighted average shares
outstanding and assumed conversions 221,946,201 197,175,514 220,324,586 197,246,071
================ ================ ================ ================
Basic earnings per share $ 0.50 $ 0.36 $ 1.30 $ 1.02
================ ================ ================ ================
Diluted earnings per share $ 0.49 $ 0.35 $ 1.28 1.00
================ ================ ================ ================
- - - ------------------------------------------------------------------------------------------------------------------------------
9
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Debt
- - - ---------------------------------------------------------------------------------------------------------
Coupon June 30 December 31
Rates 2000 1999
----- ---- ----
(in millions of U.S. Dollars)
Short-term debt
ACE Limited commercial paper Various $ - $ 425
ACE INA commercial paper Various 327 625
ACE Financial Services Note Various 25 25
--------- ----------
$ 352 $ 1,075
========= ==========
Long-term debt
ACE INA Notes due 2004 8.20% $ 400 $ 400
ACE INA Notes due 2006 8.30% 299 299
ACE US Holdings Senior Notes due 2008 6.47% 250 250
ACE INA Subordinated Notes due 2009 8.41% 300 300
ACE INA Debentures due 2029 8.875% 100 100
ACE Financial Services Debentures due 2002 7.75% 75 75
--------- ----------
$ 1,424 $ 1,424
========= ==========
Trust Preferred Securities
ACE INA RHINO Preferred Securities due 2002 Libor + 1.25% $ 400 $ 400
ACE Financial Services Monthly Income
Preferred Securities due 2044 7.65% 75 75
ACE INA Trust Preferred Securities due 2029 8.875% 100 100
ACE INA Capital Securities due 2030 9.70% 300 -
--------- ----------
$ 875 $ 575
========= ==========
- - - ---------------------------------------------------------------------------------------------------------
ACE INA Capital Securities
On March 31, 2000, ACE Capital Trust II, a Delaware statutory business
trust ("ACE Capital Trust II") issued and sold in a public offering $300
million of 9.70 percent Capital Securities (the "Capital Securities"). All
of the common securities of ACE Capital Trust II (the "ACE Capital Trust II
Common Securities") are owned by ACE INA.
The Capital Securities mature on April 1, 2030, which may not be extended.
Distributions on the Capital Securities are payable semi-annually at a rate
of 9.70 percent, however, ACE Capital Trust II may defer these payments for
up to 10 consecutive semi-annual periods (but no later than April 1, 2030).
Any deferred payments would accrue interest semi-annually on a compounded
basis if ACE INA defers interest on the Subordinated Debentures due 2030
(as defined below).
The sole assets of ACE Capital Trust II consist of $309,280,000 principal
amount of 9.70 percent Junior Subordinated Deferrable Interest Debentures
(the "Subordinated Debentures due 2030") issued by ACE INA. The
Subordinated Debentures due 2030 mature on April 1, 2030. Interest on the
Subordinated Debentures due 2030 is payable semi-annually at a rate of 9.70
percent, however, ACE INA may defer such interest payments (but no later
than April 1, 2030), with such deferred payments accruing interest
compounded semi-annually. ACE INA may redeem the Subordinated Debentures
due 2030 in the event certain changes in tax or investment company law
occur at a redemption price equal to accrued and unpaid interest to the
redemption date plus the greater of (i) 100 percent of the principal amount
thereof, or (ii) the sum of the present value of scheduled payments of
principal and interest on the debentures from the redemption date to April
1, 2030, discounted to the redemption date on a semi-annual basis at a
discount rate equal to the applicable treasury rate plus 3.1 percent, in
the first year after issuance, and the applicable treasury rate plus .50
percent thereafter. The Capital Securities and the ACE Capital Trust II
Common Securities will be redeemed upon repayment of the Subordinated
Debentures due 2030.
10
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company has guaranteed, on a subordinated basis, ACE INA's obligations
under the Subordinated Debentures due 2030, and distributions and other
payments due on the Capital Securities (the "Guarantees"). The Guarantees,
when taken together with the Company's obligations under expense agreements
entered into with ACE Capital Trust II, provide a full and unconditional
guarantee of amounts due on the Capital Securities.
7. Mezzanine Equity
ACE Limited FELINE PRIDES
The Company issued 6,000,000 FELINE PRIDES on April 12, 2000 and an
additional 221,000 FELINE PRIDES on May 8, 2000, pursuant to a public
offering, for aggregate net proceeds of approximately $311 million. Each
FELINE PRIDES initially consists of a unit referred to as an Income PRIDES.
Each Income PRIDES consists of (i) one 8.25 percent Cumulative Redeemable
Preferred Share, Series A, liquidation preference $50 per share, of the
Company, and (ii) a purchase contract pursuant to which the holder of the
Income PRIDES agrees to purchase from the Company, on May 16, 2003,
ordinary shares at the applicable settlement rate. Each preferred share is
pledged to the Company to secure the holders obligations under the purchase
contract. A holder of an Income PRIDES can obtain the release of the
preferred share by substituting certain zero-coupon treasury securities as
security for performance under the purchase contract. The resulting unit
consisting of the zero-coupon treasury security and the purchase contract
is a Growth PRIDES, and the preferred shares would be a separate security.
A holder of a Growth PRIDES can convert it back into an Income PRIDES by
depositing preferred shares as security for performance under the purchase
contract and thereby obtain the release of the zero-coupon treasury
securities.
The aggregate liquidation preference of the 8.25 percent Cumulative
Redeemable Preferred Shares is $311.1 million. Unless deferred by the
Company, the preferred shares pay dividends quarterly at a rate of 8.25
percent per year to May 16, 2003, and thereafter at the reset rate
established pursuant to a remarketing procedure. If the Company elects to
defer dividend payments on the preferred shares, the dividends will
continue to accrue and the Company will be restricted from paying dividends
on its ordinary shares and taking certain other actions. The preferred
shares are not redeemable prior to June 16, 2003, on which date they must
be redeemed by the Company in whole.
The settlement rate is the number of ordinary shares that the Company is
obligated to sell and the holders of the FELINE PRIDES are obligated to
purchase (for a purchase price of $50 per FELINE PRIDES) on May 16, 2003.
The settlement rate will be equal to $50 divided by the average closing
price of the ordinary shares for the 20 consecutive trading days ending on
the third trading day prior to May 16, 2003, but in no event will it be
less than 1.8991 ordinary shares per FELINE PRIDES (or an aggregate of 11.8
million ordinary shares) nor greater than 2.6376 ordinary shares per FELINE
PRIDES (or an aggregate of 16.4 million ordinary shares). The settlement
rate is subject to anti-dilution adjustments.
8. Reinsurance
The Company purchases reinsurance to manage various exposures including
catastrophic risks. Although reinsurance agreements contractually obligate
the Company's reinsurers to reimburse it for the agreed upon portion of its
gross paid losses, they do not discharge the primary liability of the
Company. The amounts for net premiums written and net premiums earned in
the statements of operations are net of reinsurance. Direct, assumed and
ceded amounts for these items for the three and six months ended June 30,
2000 and 1999 are as follows:
11
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- - - -------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
---- ---- ---- ----
(in thousands of U.S. dollars except share and per share data)
Premiums
Premiums written
Direct $ 1,581,089 $ 293,000 $ 3,049,756 $ 511,461
Assumed 368,978 215,999 897,271 433,033
Ceded (736,182) (116,730) (1,276,120) (211,560)
---------------- ------------- --------------- ---------------
Net premiums written $ 1,213,885 $ 392,269 $ 2,670,907 $ 732,934
================ =============== =============== ===============
Premiums earned
Direct $ 1,570,860 $ 221,291 $ 2,633,968 $ 473,506
Assumed 346,896 179,459 748,819 309,019
Ceded (749,920) (100,479) (1,110,145) (196,987)
---------------- --------------- --------------- ---------------
Net premiums earned $ 1,167,836 $ 300,271 $ 2,272,642 $ 585,538
================ =============== =============== ===============
- - - -------------------------------------------------------------------------------------------------------------------------
The Company's provision for reinsurance recoverable at June 30, 2000 and
December 31, 1999 is as follows:
- - - ----------------------------------------------------------------------------------------------------------
June 30 December 31
2000 1999
---- ----
(in thousands of U.S. dollars)
Reinsurance recoverable on paid losses and loss expenses $ 872,670 $ 1,288,651
Reinsurance recoverable on unpaid losses and loss expenses 8,491,818 8,309,014
Provision for uncollectible balances (719,980) (757,584)
----------------- ----------------
Total reinsurance recoverable $ 8,644,508 $ 8,840,081
================= ================
- - - ----------------------------------------------------------------------------------------------------------
9. Taxation
Under current Cayman Islands law, the Company is not required to pay any
taxes in the Cayman Islands on its income or capital gains. The Company has
received an undertaking that, in the event of any taxes being imposed, the
Company will be exempted from taxation in the Cayman Islands until the year
2013. Under current Bermuda law, the Company and its Bermuda subsidiaries
are not required to pay any taxes in Bermuda on its income or capital
gains. The Company has received an undertaking from the Minister of Finance
in Bermuda, that in the event of any taxes being imposed, the Company will
be exempt from taxation in Bermuda until March 2016.
Income from the Company's operations at Lloyd's are subject to United
Kingdom (UK) corporation taxes. Lloyd's is required to pay U.S. income tax
on U.S. connected income ("U.S. income") written by Lloyd's syndicates.
Lloyd's has a closing agreement with the IRS whereby the amount of tax due
on this business is calculated by Lloyd's and remitted directly to the IRS.
These amounts are then charged to the personal accounts of the
Names/Corporate Members in proportion to their participation in the
relevant syndicates. The Company's Corporate Members are subject to this
arrangement but, as UK domiciled companies, will receive UK corporation tax
credits for any U.S. income tax incurred up to the value of the equivalent
UK corporation income tax charge on the U.S. income.
12
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ACE INA, ACE US Holdings and ACE Financial Services are subject to income
taxes imposed by U.S. authorities and file U.S. tax returns. Certain
international operations of the Company are also subject to income taxes
imposed by the jurisdictions in which they operate.
The Company is not subject to taxation other than as stated above. There
can be no assurance that there will not be changes in applicable laws,
regulations or treaties which might require the Company to change the way
it operates or become subject to taxation.
The income tax provision for the three and six months ended June 30, 2000
and 1999 is as follows:
- - - -------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
---- ---- ---- ----
(in thousands of U.S. dollars)
Current tax expense $ 13,307 $ 2,464 $ 22,035 $ 3,684
Deferred tax expense 3,612 2,034 27,884 5,966
-------------- -------------- ---------------- -------------
Provision for income taxes $ 16,919 $ 4,498 $ 49,919 $ 9,650
============== ============== ================ =============
- - - -------------------------------------------------------------------------------------------------------------------
The components of the net deferred tax asset as of June 30, 2000 and
December 31, 1999 is as follows:
- - - ----------------------------------------------------------------------------------------------
June 30 December 31
2000 1999
---- ----
(in thousands of U.S. dollars)
Deferred tax assets
Loss reserve discount $ 665,164 $ 677,459
Foreign tax credits 122,228 116,829
Uncollectible reinsurance 21,940 24,413
Net operating loss carry forward 215,480 164,993
Unrealized depreciation on investments 8,717 12,557
Other 300,035 305,647
--------------- ---------------
Total deferred tax assets 1,333,564 1,301,898
--------------- ---------------
Deferred tax liabilities
Deferred policy acquisition costs 78,404 87,691
Other 91,191 164,699
--------------- ---------------
Total deferred tax liabilities 169,595 252,390
--------------- ---------------
Valuation allowance 159,649 133,324
--------------- ---------------
Net deferred tax asset $ 1,004,320 $ 916,184
=============== ===============
- - - ----------------------------------------------------------------------------------------------
13
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Summarized financial information
The following is consolidated summarized financial information for ACE INA
and ACE Financial Services, both wholly owned subsidiaries of the Company.
- - - -----------------------------------------------------------------------------------------------------------------
Selected Financial Data: ACE INA Three Months Ended Six Months Ended
June 30 June 30
2000 2000
----------------------------- -----------------------
(in thousands of U.S. (in thousands of U.S.
Dollars) Dollars)
Selected Statement of Operations Data
Total revenue $ 910,455 $ 1,759,578
Net income $ 28,621 $ 82,083
Selected Balance Sheet Data
Total investments and cash $ 6,846,202
Total assets 21,667,762
Unpaid losses and loss expenses 13,468,480
Total shareholders' equity $ 1,282,599
- - - ------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------
Selected Financial Data: ACE Financial Services Three Months Ended June 30 Six Months Ended June
2000 30
2000
----------------------------- -----------------------
(in thousands of (in thousands of
U.S. Dollars) U.S. Dollars)
Selected Statement of Operation Data
Total revenue $ 98,253 $ 250,572
Net income $ 22,258 $ 43,057
Selected Balance Sheet Data
Total investments and cash $ 1,837,670
Total assets 2,236,564
Unpaid losses and loss expenses 549,677
Total shareholders' equity $ 1,003,514
- - - --------------------------------------------------------------------------------------------------------------------
Separate financial statements of ACE INA and ACE Financial Services have
not been presented as management has determined that such information is
not material to the holders of ACE INA and ACE Financial Services debt
securities.
14
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Segment information
The following tables summarize the operations by segment for the three and
six months ended June 30, 2000 and 1999. Net realized gains (losses) have
been presented net of related taxes.
- - - ------------------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 2000
ACE ACE
ACE ACE Global Global ACE ACE Financial ACE
Bermuda Markets Reinsurance USA International Services Other(1) Consolidated
------- ------- ----------- --- ------------- -------- -------- ------------
(in thousands of U.S. Dollars)
Operations Data
Gross premiums written $137,968 $193,389 $42,607 $948,785 $544,300 $83,018 $ $1,950,067
Net premiums written 126,676 137,277 29,977 459,269 379,378 81,308 - 1,213,885
Net premiums earned 103,387 147,325 26,159 462,756 355,018 73,191 - 1,167,836
Losses and loss expenses 73,397 83,584 1,863 353,886 209,446 45,935 - 768,111
Policy acquisition costs 3,998 38,173 5,747 43,632 57,943 14,235 - 163,728
Administrative expenses 7,324 17,985 3,596 60,729 68,390 8,515 16,325 182,864
----------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
Underwriting income (loss) 18,668 7,583 14,953 4,509 19,239 4,506 (16,325) 53,133
Net investment income 36,162 7,300 14,783 78,521 23,372 24,474 (3,583) 181,029
Amortization of goodwill (225) 985 3,503 135 - 1,051 13,875 19,324
Interest expense 6 978 - 8,336 - 3,331 41,296 53,947
Income tax expense (benefit) 638 2,591 (173) 23,561 8,332 2,928 (17,060) 20,817
----------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
Income (loss) excluding net
realized gains (losses) 54,411 10,329 26,406 50,998 34,279 21,670 (58,019) 140,074
Net realized gain (loss)
(net of income tax) (10,922) (174) (5,825) (6,449) (3,040) 588 (324) (26,146)
----------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
Net income (loss) $ 43,489 $ 10,155 $ 20,581 $ 44,549 $ 31,239 $ 22,258 $ (58,343) $ 113,928
----------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
Total Assets $2,861,857 $1,850,119 $1,498,144 $15,709,214 $3,574,109 $2,236,564 $2,474,841 $30,204,848
=========== =========== =========== ============ =========== =========== =========== ============
- - - ------------------------------------------------------------------------------------------------------------------------------------
(1)Includes ACE Limited, ACE INA Holdings and intercompany eliminations
15
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- - - ------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 1999
ACE
ACE ACE Global Global ACE ACE
Bermuda Markets Reinsurance USA(1) Other(2) Consolidated
------- ------- ----------- ------ ----- ------------
(in thousands of U.S. Dollars)
Operations Data
Gross premiums written 171,652 207,192 45,859 84,296 - 508,999
Net premiums written 140,814 161,866 43,790 45,799 - 392,269
Net premiums earned 154,303 82,283 37,414 26,271 - 300,271
Losses and loss expenses 131,814 45,923 61,527 16,207 - 255,471
Policy acquisition costs 3,532 23,271 4,853 (185) - 31,471
Administrative expenses 6,520 10,680 3,032 8,852 12,065 41,149
------------- -------------- -------------- ------------ ------------ -------------
Underwriting income (loss) 12,437 2,409 (31,998) 1,397 (12,065) (27,820)
Net investment income 48,028 6,042 15,600 12,266 2,858 84,794
Amortization of goodwill (208) 1,042 3,503 177 - 4,514
Interest expense (income) 3,821 900 - 7,145 (7,719) 4,147
Income tax expense (benefit) 526 1,739 - 2,233 - 4,498
------------- -------------- -------------- ------------ ------------ -------------
Income (loss) excluding net
realized gains (losses) 56,326 4,770 (19,901) 4,108 (1,488) 43,815
Net realized gain (loss)
(net of income tax) 38,800 (1,718) (3,740) (87) (7,948) 25,307
------------- ------------- ------------- ------------ ----------- -------------
Net income (loss) $ 95,126 $ 3,052 $ (23,641) $ 4,021 $(9,436) $ 69,122
------------- ------------- ------------- ------------ ----------- -------------
Total Assets $ 3,289,137 $ 1,435,792 $ 1,406,828 $1,778,644 $1,757,408 $9,667,809
============= ============== ============== ============== ============= ==============
- - - ------------------------------------------------------------------------------------------------------------------------
(1) Prior to acquisition of ACE INA.
(2) Includes ACE Limited and intercompany eliminations.
16
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
-----------------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 2000
ACE ACE
ACE ACE Global Global ACE ACE Financial ACE
Bermuda Markets Reinsurance USA International Services Other(1) Consolidated
------- ------- ----------- --- ------------- -------- -------- ------------
(in thousands of U.S. Dollars)
Operations Data
Gross premiums written $311,047 $513,307 $147,473 $1,687,680 $1,056,900 $230,620 $ $ 3,947,027
Net premiums written 264,724 374,468 133,454 919,267 755,538 223,456 - 2,670,907
Net premiums earned 185,872 280,333 58,355 845,570 698,310 204,202 - 2,272,642
Losses and loss expenses 132,301 155,768 11,661 631,091 407,966 144,807 - 1,483,594
Policy acquisition costs 7,083 74,733 11,697 78,068 114,123 28,666 - 314,370
Administrative expenses 14,784 35,570 4,849 129,921 143,037 16,040 32,671 376,872
--------- --------- --------- ----------- ---------- ----------- --------- -----------
Underwriting income (loss) 31,704 14,262 30,148 6,490 33,184 14,689 (32,671) 97,806
Net investment income 72,334 15,488 29,783 161,943 44,886 46,834 (7,304) 363,964
Amortization of goodwill (433) 2,025 7,005 270 - 2,103 28,000 38,970
Interest expense 690 2,183 - 16,605 - 6,638 85,020 111,136
Income tax expense (benefit) 1,265 5,446 (173) 46,753 14,835 9,261 (32,835) 44,552
--------- --------- --------- ----------- ---------- ----------- ---------- -----------
Income (loss) excluding net
realized gains (losses) 102,516 20,096 53,099 104,805 63,235 43,521 (120,160) 267,112
Net realized gain (loss)
(net of income tax) 24,297 (948) (7,945) (10,847) 19,287 (464) (2,051) 21,329
---------- ---------- ---------- ----------- ---------- ----------- ---------- -----------
Net income (loss) $ 126,813 $ 19,148 $ 45,154 $ 93,958 $ 82,522 $ 43,057 $ (122,211) $ 288,441
---------- ---------- ---------- ----------- ---------- ----------- ---------- ----------
Total Assets $2,861,857 $1,850,119 $1,498,144 $15,709,214 $3,574,109 $ 2,236,564 $2,474,841 $30,204,848
========== ========== ========== =========== ========== =========== ========== ===========
-----------------------------------------------------------------------------------------------------------------------------------
(1)Includes ACE Limited, ACE INA Holdings and intercompany eliminations
17
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- - - -------------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1999
ACE
ACE ACE Global Global ACE ACE
Bermuda Markets Reinsurance USA(1) Other(2) Consolidated
------- ------- ----------- ------ ----- ------------
(in thousands of U.S. Dollars)
Operations Data
Gross premiums written $ 302,270 $346,567 $ 160,433 $ 135,224 - $ 944,494
Net premiums written 239,395 266,262 158,385 68,892 - 732,934
Net premiums earned 271,923 189,467 73,986 50,162 - 585,538
Losses and loss expenses 196,913 107,952 76,258 31,229 - 412,352
Policy acquisition costs 6,851 50,680 9,596 (1,303) - 65,824
Administrative expenses 21,437 24,857 6,009 18,516 24,980 95,799
--------- ------------ ------------ --------- --------- ------------
Underwriting income (loss) 46,722 5,978 (17,877) 1,720 (24,980) 11,563
Net investment income 97,312 12,628 31,967 24,788 4,583 171,278
Amortization of goodwill (416) 2,099 7,005 246 - 8,934
Interest expense (income) 7,384 2,225 - 13,982 (14,914) 8,677
Income tax expense 956 4,307 - 4,387 - 9,650
---------- ------------ ------------ --------- --------- ------------
Income (loss) excluding net 136,110 9,975 7,085 7,893 (5,483) 155,580
realized gains (losses)
Net realized gain (loss) (net of
income tax) 56,870 (1,936) (4,444) 20 (7,949) 42,561
---------- ------------ ------------ --------- ---------- -----------
Net income (loss) $ 192,980 $ 8,039 $ 2,641 $ 7,913 $(13,432) $ 198,141
---------- ------------ ------------ ---------- ---------- -----------
Total Assets $3,289,137 $ 1,435,792 $ 1,406,828 $1,778,644 $1,757,408 $9,667,809
========== ============ ============ ========== ========== ===========
- - - -------------------------------------------------------------------------------------------------------------------------------
(1) Prior to acquisition of ACE INA.
(2) Includes ACE Limited and intercompany eliminations.
12. Reclassification
Certain items in the prior period financial statements have been reclassified
to conform with the current period presentation.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is a discussion of the Company's results of operations,
financial condition, liquidity and capital resources as of and for the
three months and six months ended June 30, 2000. The results of operations
and cash flows for any interim period are not necessarily indicative of
results for the full year. This discussion should be read in conjunction
with the consolidated financial statements, related notes thereto and the
Management's Discussion and Analysis of Results of Operations and Financial
Condition included in the Company's 1999 Annual Report on Form 10-K.
Safe Harbor Disclosure
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Any written or oral statements made
by or on behalf of the Company may include forward-looking statements which
reflect the Company's current views with respect to future events and
financial performance. These forward-looking statements are subject to
certain uncertainties and other factors that could cause actual results to
differ materially from such statements. These uncertainties and other
factors (which are described in more detail elsewhere herein and in
documents filed by the Company with the Securities and Exchange Commission)
include, but are not limited to, (i) uncertainties relating to government
and regulatory policies (such as subjecting the Company to insurance
regulation or taxation in additional jurisdictions or amending or revoking
or enacting any laws, regulations or treaties affecting the Company's
current operations), (ii) the occurrence of catastrophic events or other
insured or reinsured events with a frequency or severity exceeding the
Company's estimates, (iii) legal, regulatory, and legislative developments,
(iv) the uncertainties of the loss reserving process including the
difficulties associated with assessing environmental and latent injuries,
(v) the actual amount of new and renewal business and market acceptance of
the Company's products, (vi) loss of the services of any of the Company's
executive officers, (vii) changing rates of inflation and other economic
conditions, (viii) losses due to foreign currency exchange rate
fluctuations, (ix) ability to collect reinsurance recoverables, (x) the
competitive environment in which the Company operates, related trends and
associated pricing pressures and developments, (xi) the impact of mergers
and acquisitions, including the ability to successfully integrate acquired
businesses and achieve cost savings, competing demands for ACE's capital
and the risk of undisclosed liabilities, (xii) developments in global
financial markets which could affect the Company's investment portfolio and
financing plans, and (xiii) risks associated with the introduction of new
products and services. The words "believe", "anticipate", "estimate",
"project", "plan", "expect", "intend", "hope", "will likely result" or
"will continue" and variations thereof and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. The Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information,
future events or otherwise.
General
ACE Limited ("ACE" or "the Company"), through its various subsidiaries,
provides a broad range of insurance and reinsurance products to insureds in
the United States and almost 50 other countries. In addition, ACE, through
ACE Global Markets, provides funds at Lloyd's, primarily in the form of
letters of credit, to support underwriting capacity for Lloyd's syndicates
managed by Lloyd's managing agencies which are indirect wholly owned
subsidiaries of ACE. ACE operates through six main business segments: ACE
Bermuda, ACE Global Markets, ACE Global Reinsurance, ACE USA, ACE
International and ACE Financial Services.
On July 2, 1999, the Company completed the ACE INA acquisition. This
acquisition was recorded using the purchase method of accounting and,
accordingly, the consolidated financial statements of the Company include
the results of ACE INA and its subsidiaries from July 2, 1999, the date of
the acquisition. ACE INA is the holding company for ACE USA and ACE
International operating segments.
On December 30, 1999, the Company acquired ACE Financial Services
(previously Capital Re Corporation). This acquisition has been recorded
using the purchase method of accounting and, accordingly, the consolidated
financial statements of the Company include the results of operations of
ACE Financial Services and its subsidiaries from December 30, 1999, the
date of the acquisition.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
The Company expects to continue evaluating potential new product lines and
other opportunities in the insurance and reinsurance markets. In addition,
the Company evaluates potential acquisitions of other companies and
businesses and holds discussions with potential acquisition candidates. As
a general rule, the Company publicly announces such acquisitions only after
a definitive agreement has been reached.
As noted, during 1999, the Company made two substantial acquisitions that
were accounted for under the purchase method of accounting, which requires
that income from the acquired company only be included in the results of
the Company from the date of acquisition. This makes it difficult to
compare the financial results as presented. ACE INA's results are included
from July 2, 1999 and, ACE Financial Services from December 30, 1999.
In addition, the Company has historically recorded its results of
operations from its Lloyd's syndicates one quarter in arrears. Commencing
January 1, 2000, the Company now records the results from the Lloyd's 2000
underwriting year on a current basis. The impact of this change is
discussed in the relevant sections. Prior year underwriting results are
still reported one quarter in arrears but underwriting results should run
off over the next few quarters. The Company has also increased its
percentage of participation in the Lloyd's syndicates it manages in 2000
versus 1999.
Results of Operations - Three Months ended June 30, 2000
- - - -------------------------------------------------------------------------------
Net Income Three Months Ended
June 30
2000 1999
---- ----
(in millions of U.S. Dollars)
Income excluding net realized gains
(losses) on investments $ 140 $ 44
Net realized gains (losses) on
investments (net of taxes) (26) 25
-------------- ------------
Net income $ 114 $ 69
============== ============
- - - --------------------------------------------------------------------------------
Income excluding net realized gains (losses) on investments was $140
million for the quarter ended June 2000 compared with $44 million in 1999.
The increase was partly due to the inclusion of the results of ACE INA and
ACE Financial Services this quarter. Both of these operations were acquired
after June 30, 1999. The increase was also partly due to better operating
results at Tempest Re as a result of minimal catastrophe activity in the
June 2000 quarter. In the June 1999 quarter, there were a large number of
insured catastrophes that impacted Tempest Re's results.
Net realized losses on investments (net of taxes) were $26 million for the
June 2000 quarter compared with net realized gains of $25 million for the
June 1999 quarter. The realized losses were primarily the result of losses
generated by the fixed maturities portfolios in ACE INA and losses
generated by the financial futures and option contracts in ACE Bermuda.
Net income for the quarter was $114 million compared with $69 million for
the quarter ended June 1999. Again, the increase in net income was due
primarily to the inclusion of the results of ACE INA and ACE Financial
Services this quarter and better operating results at Tempest Re.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
- - - -------------------------------------------------------------------------------------------------
Premiums Three Months ended % Change
June 30 from
2000 1999 Prior Year
---- ---- ----------
(in millions of U.S. Dollars
Gross premiums written:
ACE Bermuda $ 138 $ 172 (20%)
ACE Global Markets 193 207 (7%)
ACE Global Reinsurance 43 46 (7%)
ACE USA 949 84 N.M.
ACE International 544 - N.M.
ACE Financial Services 83 - N.M.
------------------ ------------------ ---------------
$ 1,950 $ 509 283%
================== ================== ===============
Net premiums written:
ACE Bermuda $ 127 $ 141 (10%)
ACE Global Markets 137 162 (15%)
ACE Global Reinsurance 30 43 (32%)
ACE USA 459 46 N.M.
ACE International 380 - N.M.
ACE Financial Services 81 - N.M.
------------------ ------------------ ---------------
$ 1,214 $ 392 210%
================== ================== ===============
Net premiums earned:
ACE Bermuda $ 104 $ 155 (33%)
ACE Global Markets 147 82 79%
ACE Global Reinsurance 26 37 (30%)
ACE USA 463 26 N.M.
ACE International 355 - N.M.
ACE Financial Services 73 - N.M.
------------------ ------------------ ---------------
$ 1,168 $ 300 289%
================== ================== ===============
N.M. not meaningful
- - - -------------------------------------------------------------------------------------------------
For the quarter ended June 2000, gross premiums written increased by
$1.4 billion to $1.9 billion compared with $509 million for the quarter
ended June 1999. The increase is the result of the inclusion of ACE INA
and ACE Financial Services which contributed $1.5 billion to gross premiums
written in the current quarter, following their acquisitions. As with gross
premiums written, net premiums written and net premiums earned increased
significantly during the current quarter due to the inclusion of ACE INA
and ACE Financial Services. Net premiums written increased by $822 million
or 210 percent compared with $392 million for the June 1999 quarter and net
premiums earned increased by $868 million or 289 percent compared with $300
million for the June 1999 quarter.
The significant competitive pressures experienced in most insurance markets
over the past several years appear to have eased and the Company is now
seeing evidence of a turn in both primary and reinsurance pricing coupled
with an increase in demand for coverage.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
ACE Bermuda: Gross premiums written for the quarter ended June 2000
decreased to $138 million from $172 million for the June 1999 quarter, a
decrease of 20 percent. This decrease is primarily a result of decreases in
premiums from tailored risk solutions which is susceptible to large
fluctuations between periods. Gross premiums written during the quarter
ended June 30, 1999 included a large tailored risks solutions contract
which was fully earned during that quarter but was not renewed this year.
The remaining lines of business remained relatively flat or experienced
slight increases. Net premiums written decreased from $141 million for the
June 1999 quarter to $127 million for the June 2000 quarter. Net premiums
earned decreased from $155 million for the June 1999 quarter to $104 million
for the June 2000 quarter. As with gross premiums written, both of these
decreases are primarily the result of decreases in tailored risk solutions.
ACE Global Markets: Gross premiums written decreased by 7 percent from $207
million for the June 1999 quarter to $193 million for the June 2000 quarter.
As previously reported, the Company now records the results of the Lloyd's
2000 underwriting year on a current basis and the results for June 2000 are
for business concluded in the June 2000 quarter. Prior year underwriting
results are still recorded one quarter in arrears but should run off over
the next several quarters. On a comparable basis, gross premiums written
increased by approximately $27 million in 2000 compared with 1999.
ACE Global Reinsurance: Gross premiums written for the quarter decreased 7
percent from $46 million for the June 1999 quarter to $43 million for the
June 2000 quarter. This decrease is due primarily to program restructuring
and the non-renewal of a major contract. Net premiums written for the
quarter decreased 32 percent and net premiums earned decreased 30 percent,
as Tempest Re moved preemptively to secure retrocessional capacity in
anticipation of higher prices on July 1, 2000. Net premiums written and
earned were also affected by premium adjustments accrued on existing ceded
programs resulting from increased international writings.
ACE USA: Gross premiums written increased to $949 million for the quarter
ended June 2000 from $84 million for the quarter ended June 1999. Net
premiums written increased to $459 million for the current quarter from $46
million for the comparative quarter. This increase is due primarily to the
inclusion of the ACE INA domestic business in 2000. On a comparable basis,
this segment showed growth year over year driven primarily by growth in the
large account unit, property and US International business units and
aerospace. Net premiums earned increased from $26 million for the June 1999
quarter to $463 million for the June 2000 quarter due to the inclusion of
the ACE INA domestic business.
ACE International: Gross premiums written were $544 million for the June
2000 quarter. Net premiums written and net premiums earned were $380
million and $355 million respectively.
ACE Financial Services: Gross premiums written for ACE Financial Services
were $83 million for the quarter. This is the second quarter in which the
Company's financial results reflect the acquisition of ACE Financial
Services. Net premiums written were $81 million and net premiums earned
were $73 million.
Underwriting Results
The underwriting results of a property and casualty insurer are discussed
frequently by reference to its combined ratio, loss and loss expense ratio
and underwriting and administrative expense ratio. Each ratio is derived by
dividing the relevant expense amounts by net premiums earned. The combined
ratio is the sum of the loss and loss expense ratio and the underwriting
and the administrative expense ratio. A combined ratio under 100 percent
indicates underwriting income and a combined ratio exceeding 100 percent
indicates underwriting losses.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
- - - --------------------------------------------------------------------------------
Three Months Ended
June 30
2000 1999
---- ----
Loss and loss expense ratio
ACE Bermuda 71.0% 85.4%
ACE Global Markets 56.7% 55.8%
ACE Global Reinsurance 7.1% 164.4%
ACE USA 76.5% 61.7%
ACE International 59.0% -
ACE Financial Services 62.8% -
Consolidated 65.8% 85.1%
Underwriting and administrative expense ratio
ACE Bermuda 11.0% 6.5%
ACE Global Markets 38.1% 41.3%
ACE Global Reinsurance 35.7% 21.1%
ACE USA 22.5% 33.0%
ACE International 35.6% -
ACE Financial Services 31.0% -
Consolidated 29.7% 24.2%
Combined Ratio
ACE Bermuda 82.0% 91.9%
ACE Global Markets 94.8% 97.1%
ACE Global Reinsurance 42.8% 185.5%
ACE USA 99.0% 94.7%
ACE International 94.6% -
ACE Financial Services 93.8% -
Consolidated 95.5% 109.3%
- - - --------------------------------------------------------------------------------
The process of establishing reserves for property and casualty claims
continues to be a complex and uncertain process, requiring the use of
informed estimates and judgments. The Company's estimates and judgments may
be revised as additional experience and other data becomes available and
are reviewed, as new or improved methodologies are developed or as current
laws change. Any such revisions could result in future changes in estimates
of losses or reinsurance recoverables, and would be reflected in the
Company's results of operations in the period in which the estimates are
changed.
In addition, catastrophe losses may have a significant effect on the
insurance and reinsurance industry. ACE Global Reinsurance and other
segments of the group have exposure to windstorm, hail, earthquake and
other catastrophic events, all of which are managed using measures
including underwriting controls, occurrence caps as well as modeling,
monitoring and managing its accumulations. The Company uses its
retrocessional programs to limit its net losses from catastrophes. However,
property catastrophe loss experience is generally characterized as low
frequency but high severity short-tail claims which may result in
volatility in financial results.
Underwriting results for all segments for the June 2000 quarter are
consistent with the Company's operating objective of achieving an
underwriting profit. Following the acquisition of ACE INA, the Company
initiated several cost reduction initiatives at ACE INA with a primary
focus on ACE USA. These included staff reductions at ACE INA, outsourcing
of the information technology operations at ACE USA and consolidating
numerous ACE USA field offices. These initiatives have assisted ACE USA in
achieving a combined ratio under 100 percent for the quarter.
Due to the inclusion of losses and loss expenses for ACE INA and ACE
Financial Services following the acquisitions, losses and loss expenses
increased substantially for the quarter ended June 2000 to $768 million
compared with $255 million for the quarter ended June 1999. The
Company's loss and loss expense ratio decreased from 85.1 percent in 1999
to 65.8 percent in 2000. This decrease is primarily due to the low number
of catastrophes in 2000, as well as a change in the mix of business written
in the quarter compared with 1999.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
ACE Bermuda: The loss ratio for the June 2000 quarter decreased to 71.0
percent from 85.4 percent for the June 1999 quarter. The decrease is
primarily attributable to a change in the mix of business written in the
quarter. ACE Bermuda wrote less tailored risk solutions business, which
generally has a higher loss ratio then the other lines, in the June 2000
quarter compared with the June 1999 quarter.
ACE Global Markets: The loss ratio is relatively unchanged from the
comparable quarter increasing from 55.8 percent for the June 1999 quarter
to 56.7 percent for the June 2000 quarter.
ACE Global Reinsurance: Tempest Re's loss ratio decreased to 7.1 percent
compared with 164.4 percent in 1999. The loss ratio for this segment is
directly impacted by the level of insured catastrophes. During the June
1999 quarter there were significant major catastrophic events including the
tornadoes in the midwestern U.S. and hailstorms in Australia. There have
been no significant catastrophic events affecting Tempest Re this quarter.
ACE USA: The loss ratio for ACE USA increased to 76.5 percent for the
quarter ended June 2000 compared with 61.7 percent for the same quarter
last year. The loss ratio has increased primarily because the domestic
business of ACE INA has historically had a loss ratio in excess of the ACE
US Holdings group. The June 1999 ratio relates solely to the ACE US
Holdings group prior to the acquisition of ACE INA.
ACE International: The loss ratio for the June 2000 quarter was 59.0
percent. ACE INA was acquired on July 2, 1999; therefore, there are no
comparative figures for this quarter.
ACE Financial Services: The loss ratio for the June 2000 quarter for ACE
Financial Services was 62.8 percent. ACE Financial Services was acquired on
December 30, 1999; therefore, there are no comparative figures for this
quarter.
Underwriting and administrative expenses
Underwriting and administrative expenses are comprised of the amortization
of deferred acquisition costs, which include commissions, premium taxes,
underwriting and other costs that vary with and are primarily related to
the production of premium, and administrative expenses which include all
other operating costs. Total underwriting and administrative expenses
increased from $73 million for the June 1999 quarter to $347 million for the
June 2000 quarter primarily due to the inclusion of ACE INA and ACE
Financial Services following the acquisitions. The underwriting and
administrative expense ratio increased quarter on quarter to 29.7 percent
from 24.2 percent in 1999.
ACE Bermuda: The underwriting and administrative expense ratio increased
from 6.5 percent in 1999 to 11.0 percent in 2000. The key factors influencing
this increase are increases in acquisition costs due to an increased number
of profit sharing agreements. In 1999, profit sharing agreements existed in
only two lines of business and in 2000 profit sharing agreements exist
across all lines of business. In addition, the ratio increased over last
year because net premiums earned are down this quarter due to a decrease in
tailored risk solutions business as discussed in the premiums section.
ACE Global Markets: The underwriting and administrative expense ratio
decreased slightly from 41.3 percent in the June 1999 quarter to 38.1 percent
in the June 2000 quarter due to lower acquisition costs resulting from a
change in the mix of business and an increase in earned premiums.
Administrative expenses are down in the June 2000 quarter when compared
with the June 1999 quarter primarily because 1999 included certain
restructuring expenses.
ACE Global Reinsurance: The underwriting and administrative expense ratio
increased from 21.1 percent in the June 1999 quarter to 35.7 percent in the
June 2000 quarter due to increased expenses in connection with the
expansion into Europe and the United States which to date are still
building their infrastructure and have not contributed any written
premiums. In addition, Tempest Re recognized less earned premiums in the
June 2000 quarter due to an increase in the amount of reinsurance expense
recognized.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
ACE USA: The underwriting and administrative expense ratio for ACE USA
declined from 33.0 percent for the June 1999 quarter to 22.5 percent for the
June 2000 quarter. The June 1999 ratio relates solely to the ACE US
Holdings group prior to the acquisition of ACE INA. However, the decline in
the expense ratio was primarily driven by the increase in premiums earned
from financial solutions contracts written and earned in the quarter.
ACE International: The underwriting and administrative expense ratio for ACE
International was 35.6 percent for the quarter. ACE INA was acquired on
July 2, 1999; therefore, there are no comparative figures for this quarter.
ACE Financial Services: The underwriting and administrative expense ratio
for ACE Financial Services was 31.0 percent. ACE Financial Services was
acquired on December 30, 1999; therefore, there are no comparative figures
for this quarter.
- - - --------------------------------------------------------------------------------
Net Investment Income Three Months Ended Percentage
June 30 Change
2000 1999 From Prior
---- ---- Year
(in millions of U.S. Dollars)
ACE Bermuda $ 36 $ 48 (25%)
ACE Global Markets 7 6 17%
ACE Global Reinsurance 15 16 (5%)
ACE USA 79 12 N.M.
ACE International 23 - N.M.
ACE Financial Services 25 - N.M.
Other (4) 3 N.M.
------------- ------------- -------------
Total investment income $ 181 $ 85 113%
============= ============= =============
N.M. - not meaningful
- - - --------------------------------------------------------------------------------
Net investment income increased by $96 million for the quarter ended June
2000 compared with the quarter ended June 1999. The primary reason
for this is an increase in the size of investment assets resulting from the
ACE INA and ACE Financial Services acquisitions during 1999. The rise in
U.S. interest rates also had a positive impact on investment income during
the quarter.
ACE Bermuda: Net investment income decreased by 25 percent to $36 million
for the June 2000 quarter compared with $48 million for 1999. The decrease
is due to a reduction in investable asset base due to dividends paid at the
end of December 1999.
ACE Global Markets: Net investment income increased by 17 percent to $7
million compared with $6 million in 1999 as a result of the Company's
increased participation in the Lloyd's syndicates it manages.
ACE Global Reinsurance: Net investment income decreased by 5 percent to $15
million during the current quarter compared with $16 million in 1999. The
investable asset base of Tempest Re declined in 1999 as Tempest Re paid
dividends as well as claims related to 1999 catastrophes.
ACE USA: Net investment income increased to $79 million for the June 2000
quarter compared with $12 million for 1999. The investment asset base of
ACE USA was higher during the quarter ended June 2000 than during the
quarter ended June 1999 due to the ACE INA acquisition. Net investment
income for the current quarter includes both ACE US Holdings and the US
operations of ACE INA which was acquired on July 2, 1999. Net investment
income for the June 1999 quarter only reflects ACE US Holdings investment
income.
ACE International: Net investment income of $23 million represents the net
investment income of the international operations of ACE INA which were
acquired on July 2, 1999; therefore, there is no prior period comparison.
ACE Financial Services: Net investment income of $25 million represents the
net investment income of ACE Financial Services which was acquired on
December 30, 1999; therefore, there is no prior period comparison.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
- - - --------------------------------------------------------------------------------
Net Realized Gains (Losses) on Investments Three Months Ended
June 30
2000 1999
---- ----
(in millions of U.S. Dollars)
Fixed maturities and short-term investments $ (18) $ (39)
Equity securities 3 21
Financial futures and option contracts (17) 46
Other 5 1
Currency (3) (4)
---------------- ---------------
Net realized gains (losses) $ (30) $ 25
================ ===============
- - - --------------------------------------------------------------------------------
The Company's investment strategy takes a long-term view and the portfolio
is actively managed to maximize total return within certain specific
guidelines, which minimize risk. The portfolio is reported at fair value. The
effect of market movements on the investment portfolio will directly impact
net realized gains (losses) on investments when securities are sold. Changes
in unrealized gains and losses, which result from the revaluation of
securities held, are reported as a separate component of accumulated other
comprehensive income.
The Company uses foreign currency forward and option contracts to minimize
the effect of fluctuating foreign currencies on the value of non-U.S.
dollar holdings currently held in the portfolio not specifically targeted
to match the currency of liabilities. The contracts used are not designated
as specific hedges and therefore, realized and unrealized gains and losses
recognized on these contracts are recorded as a component of net realized
gains (losses) in the period in which the fluctuations occur, together with
net foreign currency gains (losses) recognized when non-U.S. dollar
securities are sold.
Sales proceeds for fixed maturity securities were generally lower than
their amortized cost during the quarter. This resulted in net realized
losses of $18 million being recognized on fixed maturities and short-term
investments during the quarter ended June 2000 compared to net realized
losses of $39 million for the quarter ended June 1999.
Sales proceeds for equity securities were generally higher than their cost
during the quarter, resulting in net realized gains of $3 million being
recognized during the quarter compared to $21 million for the quarter ended
June 1999.
Certain of the Company's external managers of fixed income securities use
fixed income futures contracts to manage duration exposure, and gains of $2
million were recognized on these during the quarter ended June 2000.
Net realized losses generated by the Company's equity index futures
contracts amounted to $19 million during the quarter ended June 2000.
Total net realized losses attributable to the financial futures and option
contracts amounted to $17 million during the current three months, compared to
gains of $46 million for the three months ended June 1999.
- - - -----------------------------------------------------------------------------
Other Expenses Three Months Ended
June 30
2000 1999
---- ----
(in millions of U.S. Dollars)
Goodwill $ 19 $ 5
============== ==============
Interest expense $ 54 $ 4
============== ==============
- - - -----------------------------------------------------------------------------
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
The increase in goodwill amortization for the June 2000 quarter is
primarily the result of the amortization of goodwill with respect to the
ACE INA and ACE Financial Services acquisitions. The amortization of
goodwill generated from the ACE INA acquisition is approximately $14
million per quarter and the ACE Financial Services acquisition generates
approximately $1 million of goodwill amortization per quarter. ACE INA was
acquired July 2, 1999 and ACE Financial Services was acquired December 30,
1999; therefore, goodwill amortization related to these acquisitions are
not included in the comparative amounts.
The increase in interest expense for the June 2000 quarter is a result
of the additional debt incurred by the Company in connection with the
acquisition of ACE INA on July 2, 1999.
Results of Operations - Six Months ended June 30, 2000
- - - --------------------------------------------------------------------------------
Net Income Six Months Ended
June 30
2000 1999
---- ----
(in millions of U.S. Dollars)
Income excluding net realized gains on investments $ 267 $ 156
Net realized gains on investments (net of taxes) 21 42
------------- ---------
Net income $ 288 $ 198
============= =========
- - - --------------------------------------------------------------------------------
Income excluding net realized gains on investments was $267 million for the
six months ended June 2000 compared with $156 million for 1999. The
increase was due primarily to the inclusion of the results of ACE INA and
ACE Financial Services. Both of these operations were acquired after June
30, 1999. The increase was also partly due to better operating results at
Tempest Re as a result of minimal catastrophe activity in the six month
period ended June 2000. In the six month period ended June 1999, there were
a large number of insured catastrophes that impacted Tempest Re's results.
This was offset by a decrease in income excluding net realized gains on
investments in ACE Bermuda, primarily due to lower investment income
arising from a reduction in the investable asset base following dividend
payments in December 1999.
Net realized gains on investments (net of taxes) were $21 million for the
six months ended June 2000 compared with $42 million for the six
months ended June 1999. The realized gains in 2000 were generated primarily
in ACE Bermuda and ACE International which realigned certain of their
equity portfolios during the period.
Net income for the six months ended June 2000 was $288 million compared
with $198 million for the six months ended June 1999. The increase in net
income was due primarily to the inclusion of the results of ACE INA and ACE
Financial Services during the current period, as well as better results in
Tempest Re, offset somewhat by a decline in net income at ACE Bermuda.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
- - - ---------------------------------------------------------------------------------------------
Premiums Six months ended % Change
June 30 from
2000 1999 Prior Year
---- ----
(in millions of U.S. Dollars)
Gross premiums written:
ACE Bermuda $ 311 $ 302 3%
ACE Global Markets 513 347 48%
ACE Global Reinsurance 147 160 (8%)
ACE USA 1,688 135 N.M.
ACE International 1,057 - N.M.
ACE Financial Services 231 - N.M.
------------------ ------------------ ---------------
$ 3,947 $ 944 318%
================== ================== ===============
Net premiums written:
ACE Bermuda $ 265 $ 240 11%
ACE Global Markets 374 266 41%
ACE Global Reinsurance 133 158 (16%)
ACE USA 919 69 N.M.
ACE International 756 - N.M.
ACE Financial Services 224 - N.M.
------------------ ------------------ ---------------
$ 2,671 $ 733 264%
================== ================== ===============
Net premiums earned:
ACE Bermuda $ 186 $ 272 (32%)
ACE Global Markets 280 190 48%
ACE Global Reinsurance 58 74 (21%)
ACE USA 846 50 N.M.
ACE International 699 - N.M.
ACE Financial Services 204 - N.M.
------------------ ------------------ ---------------
$ 2,273 $ 586 288%
================== ================== ===============
- - - ---------------------------------------------------------------------------------------------
Gross premiums written for the six months ended June 2000 increased by
$3 billion to $3.9 billion from $944 million for the same period last
year. The inclusion of ACE INA and ACE Financial Services in the current
six months following their acquisitions accounted for $2.8 billion of this
increase. Net premiums written increased by $1.9 billion or 264 percent
from $733 million for the six months ended June 1999 and net
premiums earned increased by $1.7 billion or 288 percent from $586
million for the six months ended June 1999. As with gross premiums
written, these increases were primarily the result of the inclusion of ACE
INA and ACE Financial Services in the six months ended June 2000.
On a pro forma comparable basis, including ACE INA and ACE Financial
Services in 1999, gross and net premiums written for all segments combined
increased by over 20 percent year over year.
ACE Bermuda: Gross premiums written increased slightly from $302 million
for the six months ended June 1999 to $311 million for the six months ended
June 2000. Net premiums written increased from $240 million for the six
months ended June 1999 to $265 million for the six months ended June 2000.
This increase is primarily a result of increases in satellite, excess
property, and tailored risk solutions premiums. Net premiums earned
decreased from $272 million for the six months ended June 1999 to $186
million for the six months ended June 2000 due primarily to decreases in
excess liability and tailored risk solutions. During the six months ended
June 1999 ACE Bermuda had an increase in net premiums earned as a result of
the commutation of a tailored risk solution contract which generated net
premiums earned of $25 million and the writing of a significant tailored
risk solution contract which generated one time net premiums earned of $77
million. The decreases in net premiums earned were partially offset by
increases in property and political risk premiums.
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
ACE Global Markets: Gross premiums written increased 48 percent from $347
million for the six months ended June 1999 to $513 million for the six
months ended June 2000. The reason for the increase is two-fold. ACE Global
Markets increased its participation in the syndicates under management
again in 2000. ACE's participation in 2000 is 84 percent of capacity. In
addition, as already noted, the Company now records the results of the
Lloyd's 2000 underwriting year on a current basis. Prior year underwriting
results are still recorded one quarter in arrears but underwriting results
should run off over the next several quarters. On a comparable basis, gross
premiums written increased by approximately $20 million in 2000 compared
with 1999.
ACE Global Reinsurance: Gross premiums written decreased from $160 million
for the six months ended June 1999 to $147 million for the six months ended
June 2000. This decrease is due predominantly to a number of program
restructurings and non- renewals. Net premiums written decreased from $158
million in the six months ended June 1999 to $133 million in the six months
ended June 2000 primarily for the same reasons explained above for gross
premiums written. Net premiums earned decreased from $74 million for the
six months ended June 1999 to $58 million for the six months ended June
2000. This decrease is due to lower premium levels experienced as well as
premium adjustments accrued on existing ceded programs resulting from
increased international writings.
ACE USA: Gross premiums written increased to $1.7 billion from $135 million
for the six months ended June 1999 and net premiums written increased to
$919 million from $69 million primarily because of the inclusion of the ACE
INA domestic business in 2000. On a comparable basis, this segment showed
growth year over year driven primarily by production gains in the large
account unit, property, aerospace, the Westchester Specialty division,
warranty and the USI division (US based multinational accounts). It is
important to note that the inflow of financial solutions business is
generally more sporadic than the more traditional lines of business and is
not necessarily indicative of future trends. Net premiums earned increased
from $50 million for the six months ended June 1999 to $846 million for the
six months ended June 2000. The increase in net premiums earned is due to
the inclusion of the ACE INA domestic business and for the reasons
discussed above.
ACE International: Gross premiums written were $1.1 billion for the six
months ended June 2000. The growth in property and casualty business in ACE
International was driven by an expanded product offering as ACE continues
to gain acceptance by producers worldwide. Accident and health premiums
have been flat year to date.
ACE Financial Services: Gross premiums written for ACE Financial Services
were $231 million for the six months ended June 2000. Net premiums written
and earned were $223 million and $204 million respectively. This is the
first year in which our financial results reflect the acquisition of ACE
Financial Services, which was concluded on December 30, 1999. The Company's
financial guaranty reinsurance business has witnessed historically high
transactional volume despite slowing municipal and asset-backed markets due
in part to rising interests rates. The financial risks reinsurance business
has seen strong production in structured excess of loss financial guaranty
and residential mortgage guaranty.
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
- - - --------------------------------------------------------------------------------
Six Months Ended
June 30
2000 1999
---- ----
Loss and loss expense ratio
ACE Bermuda 71.2% 72.4%
ACE Global Markets 55.6% 57.0%
ACE Global Reinsurance 20.0% 103.1%
ACE USA 74.6% 62.3%
ACE International 58.4% -
ACE Financial Services 70.9% -
Consolidated 65.3% 70.4%
Underwriting and administrative expense ratio
ACE Bermuda 11.8% 10.4%
ACE Global Markets 39.4% 39.8%
ACE Global Reinsurance 28.3% 21.1%
ACE USA 24.6% 34.3%
ACE International 36.8% -
ACE Financial Services 21.9% -
Consolidated 30.4% 27.6%
Combined Ratio
ACE Bermuda 83.0% 82.8%
ACE Global Markets 95.0% 96.8%
ACE Global Reinsurance 48.3% 124.2%
ACE USA 99.2% 96.6%
ACE International 95.2% -
ACE Financial Services 92.8% -
Consolidated 95.7% 98.0%
- - - --------------------------------------------------------------------------------
Underwriting results for all segments for the six months ended June 2000
are consistent with the Company's operating objective of achieving an
underwriting profit. Following the acquisition of ACE INA, the Company
initiated several cost reduction initiatives at ACE INA with a primary
focus on ACE USA. These included staff reductions at ACE INA, outsourcing
of the information technology operations at ACE USA and consolidating
numerous ACE USA field offices.
Losses and loss expenses increased substantially for the six months ended
June 2000 to $1.5 billion compared with $412 million for the six months
ended June 1999. This increase is primarily due to the inclusion of losses
and loss expenses for ACE INA and ACE Financial Services following the
acquisitions. The Company's loss and loss expense ratio decreased from 70.4
percent in 1999 to 65.3 percent in 2000. This decrease is primarily due to
there being fewer catastrophes in the first six months of 2000 compared
with a large number of catastrophes in the first six months of 1999.
ACE Bermuda: The loss ratio for the six months ended June 2000 was
relatively unchanged at 71. 2 percent, decreasing from 72.4 percent for the
six months ended June 1999.
ACE Global Markets: The loss ratio has decreased slightly over the past
year from 57.0 percent for the six months ended June 1999 to 55.6 percent for
the six months ended June 2000, reflecting a small change in the mix of
business written.
ACE Global Reinsurance: The loss ratio for this segment is directly
impacted by the level of insured catastrophes. As a result, Tempest Re's
loss ratio decreased to 20.0 percent compared with 103.1 percent in 1999.
There were a significant number of catastrophes in 1999 when compared with
the first six months of 2000.
ACE USA: The loss ratio for ACE USA increased to 74.6 percent in 2000
compared with 62.3 percent in 1999. This increase is primarily because the
domestic business of ACE INA has historically had a loss ratio in excess of
ACE US Holdings. The six months ended June 1999 ratio relates solely to the
ACE US Holdings group prior to the acquisition of ACE INA.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
ACE International: The loss ratio for the six months ended June 2000
was 58.4 percent. ACE INA was acquired on July 2, 1999; therefore, there
are no comparative figures for this quarter.
ACE Financial Services: The loss ratio for the six months ended June 2000
for ACE Financial Services was 70.9 percent. ACE Financial Services was
acquired on December 30, 1999; therefore, there are no comparative figures
for this quarter.
Underwriting and administrative expenses
As with losses and loss expenses, total underwriting and administrative
expenses increased significantly from $162 million for the six months ended
June 1999 to $691 million for the six months ended June 2000 primarily due
to the inclusion of ACE INA and ACE Financial Services following the
acquisitions. The underwriting and administrative expense ratio increased
to 30.4 percent from 27.6 percent.
ACE Bermuda: The underwriting and administrative expense ratio increased
from 10.4 percent in 1999 to 11.8 percent in 2000. The key factor
influencing the increase was increased acquisition costs due to increased
profit sharing contracts. These increases are offset by the transfer of
certain expenses to ACE Limited following the realignment of certain
business functions to the holding company in addition to reductions in
other expenses.
ACE Global Markets: The underwriting and administrative expense ratio
remained relatively unchanged at 39.4 percent compared to 39.9 percent for
the six months ended June 1999.
ACE Global Reinsurance: The underwriting and administrative expense ratio
increased from 21.1 percent in 1999 to 28.3 in 2000 due to increased
expenses in connection with the expansion into Europe and the United
States. In addition, Tempest has taken advantage of the favorable pricing
to increase its use of retrocessional coverage thereby decreasing its net
earned premiums.
ACE USA: The underwriting and administrative expense ratio for ACE USA
declined from 34.3 percent in 1999 to 24.6 percent in 2000. The ratio for
the six months ended June 1999 relates solely to the ACE US Holdings group
prior to the acquisition of ACE INA. The increase in premiums earned from
financial solutions contracts written and earned during the current period
contributed to the decline in the expense ratio.
ACE International: The underwriting and administrative expense ratio of ACE
International was 36.8 percent for the current six months. ACE INA was
acquired on July 2, 1999; therefore, there are no comparative figures for
the six months ended June 1999.
ACE Financial Services: The underwriting and administrative expense ratio
of ACE Financial Services was 21.9 percent. ACE Financial Services was
acquired on December 30, 1999; therefore, there are no comparative figures
for the six months ended June 1999.
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
- - - --------------------------------------------------------------------------------
Net Investment Income Six Months Ended Percentage
June 30 Change
From Prior
2000 1999 Year
---- ----
(in millions of U.S. Dollars)
ACE Bermuda $ 72 $ 97 (26%)
ACE Global Markets 16 13 21%
ACE Global Reinsurance 30 32 (7%)
ACE USA 162 25 N.M.
ACE International 45 - N.M.
ACE Financial Services 47 - N.M.
Other (8) 5 N.M.
----------- ------------ --------------
Total investment income $ 364 $ 171 113%
============ ============= ==============
N.M. - not meaningful
- - - --------------------------------------------------------------------------------
Net investment income increased by $193 million for the six months ended
June 2000 compared with the six months ended June 1999. The primary reason
for this is an increase in the size of investment assets resulting from the
ACE INA and ACE Financial Services acquisitions during 1999. The rise in
U.S. interest rates had a positive impact on investment income during the
six months ended June 2000.
ACE Bermuda: Net investment income decreased by 26 percent to $72 million
in 2000 compared with $97 million in 1999. This decrease is primarily due
to a reduction in investable asset base due to dividends paid at the end of
December 1999.
ACE Global Markets: Net investment income increased by 21 percent to $16
million compared with $13 million in 1999 as a result of the Company's
increased participation in the Lloyd's syndicates it manages.
ACE Global Reinsurance: Net investment income decreased slightly to $30
million during the six months ended June 2000 compared with $32 million in
the first six months of 1999. The investable asset base of Tempest Re
declined in 1999 as Tempest Re paid dividends and paid claims related to
1999 catastrophes.
ACE USA: Net investment income increased to $162 million in 2000 compared
with $25 million in 1999. The investment asset base of ACE USA was higher
during the six months ended June 2000 than during the six months ended June
1999 due to the ACE INA acquisition. Net investment income for the current
year includes both ACE US Holdings and the US operations of ACE INA which
was acquired on July 2, 1999. Net investment income for 1999 only reflects
ACE US Holdings investment income.
ACE International: Net investment income of $45 million represents the net
investment income of the international operations of ACE INA which were
acquired on July 2, 1999; therefore, there is no prior period comparison.
ACE Financial Services: Net investment income of $47 million represents the
net investment income of ACE Financial Services which was acquired on
December 30, 1999; therefore, there is no prior period comparison.
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
- - - --------------------------------------------------------------------------------
Net Realized Gains (Losses) on Investments Six Months Ended
June 30
2000 1999
---- ----
(in millions of U.S. Dollars)
Fixed maturities and short-term investments $ (58) $ (32)
Equity securities 93 28
Financial futures and option contracts (8) 50
Other 7 2
Currency (7) (5)
------------- -------------
Net realized gains $ 27 $ 43
============= =============
- - - --------------------------------------------------------------------------------
Sales proceeds for fixed maturity securities were generally lower than
their amortized cost during the six months ended June 2000. This resulted
in net realized losses of $58 million being recognized on fixed maturities
and short-term investments during the six months ended June 2000 compared
to net realized loss of $32 million for the six months ended June 1999.
Sales proceeds for equity securities were generally higher than their cost
during the six months ended June 2000, resulting in net realized gains
of $93 million being recognized during the period compared to $28 million
for the six months ended June 1999.
Certain of the Company's external managers of fixed income securities use
fixed income futures contracts to manage duration exposure, and losses of
$2 million were recognized on these during the six months ended June
2000. Net realized losses generated by the Company's equity index futures
contracts amounted to $6 million during the six months ended June 2000.
Total net realized losses attributable to the financial futures and option
contracts amounted to $8 million during the six months ended June 2000,
compared to gains of $50 million for the six months ended June 1999.
- - - ----------------------------------------------------------------------------
Other Expenses Six Months Ended
June 30
2000 1999
---- ----
(in millions of U.S. Dollars)
Goodwill $ 39 $ 9
================ ===============
Interest expense $ 111 $ 9
================ ===============
- - - ----------------------------------------------------------------------------
The increase in goodwill amortization in the six months ended June 2000 is
primarily the result of the amortization of goodwill with respect to the
ACE INA and ACE Financial Services acquisitions. ACE INA was acquired July
2, 1999 and ACE Financial Services was acquired December 30, 1999,
therefore, goodwill amortization related to these acquisitions are not
included in the comparative amounts.
The increase in interest expense for the six months ended June 2000 is a
result of the additional debt incurred by the Company in connection with
the acquisition of ACE INA on July 2, 1999.
CONSOLIDATED FINANCIAL POSITION
Total assets at June 30, 2000 were relatively unchanged at $30.2 billion
compared with $30.1 billion at December 31, 1999.
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
At June 30, 2000, total investments and cash decreased to $12.5 billion,
compared to $12.9 billion at December 31, 1999. This reduction is partly
due to the decline in market value of fixed maturity securities because of
interest rate increases. In addition, the Company used approximately $100
million of internal funds to repay short-term debt and had negative cash
flow from operations of approximately $200 million. The Company's
investment portfolio is structured to provide a high level of liquidity to
meet insurance related or other obligations. The consolidated investment
portfolio is externally managed by independent professional investment
managers and is invested primarily in high quality investment grade
marketable fixed income and equity securities, the majority of which trade
in active, liquid markets.
The Company maintains loss reserves for the estimated unpaid ultimate
liability for losses and loss expenses under the terms of its policies and
agreements. The reserve for unpaid losses and loss expenses of $16.7
billion at June 30, 2000 includes $9.4 billion of case and loss expense
reserves. While the Company believes that its reserve for unpaid losses and
loss expenses at June 30, 2000 are reasonable, future developments may
result in ultimate losses and loss expenses significantly greater or less
than the reserve provided.
One of the ways the Company manages its loss exposure is through the use of
reinsurance. While reinsurance arrangements are designed to limit losses
from large exposures and to permit recovery of a portion of direct losses,
reinsurance does not relieve the Company of its liability to its insureds.
Accordingly, the Company's loss reserves represent total gross losses and
reinsurance recoverable represents anticipated recoveries of a portion of
those losses as well as amounts recoverable from reinsurers with respect to
claims which have already been paid by the Company. The Company's
reinsurance recoverables were approximately $8.6 billion and $8.8 billion
at June 30, 2000 and December 31, 1999, net of allowances for unrecoverable
reinsurance of $720 million and $758 million, respectively.
The allowance for unrecoverable reinsurance is required principally due to
the failure of reinsurers to indemnify the Company, primarily because of
disputes under reinsurance contracts and insolvencies. Reinsurance disputes
continue to be significant, particularly on larger and more complex claims,
such as those related to asbestos and environmental pollution (discussed
below) and London reinsurance market exposures. Allowances have been
established for amounts estimated to be uncollectible.
Included in the Company's liabilities for losses and loss expenses are
liabilities for asbestos environmental and latent injury damage claims and
expenses ("A&E claims"). These liabilities include provision for both
reported and IBNR claims. These claims are principally related to claims
arising from remediation costs associated with hazardous waste sites and
bodily injury claims related to asbestos products and environmental
hazards.
LIQUIDITY AND CAPITAL RESOURCES
As a holding company, ACE's assets consist primarily of the stock of its
subsidiaries as well as other investments. In addition to investment
income, its cash flows currently depend primarily on dividends or other
statutorily permissible payments from its Bermuda-based operating
subsidiaries (the "Bermuda subsidiaries"). There are currently no legal
restrictions on the payment of dividends from retained earnings by the
Bermuda subsidiaries as the minimum statutory capital and surplus
requirements are satisfied by the share capital and additional paid-in
capital of each of the Bermuda subsidiaries. However, the payment of
dividends or other statutorily permissible distributions by the Bermuda
subsidiaries is subject to the need to maintain shareholder's equity at a
level adequate to support the level of insurance and reinsurance
operations. During the six months ended June 30, 2000, ACE Bermuda declared
dividends of $81 million. During the year ended December 31, 1999, ACE
Bermuda and Tempest Re declared dividends of $726 million and $316 million,
respectively.
34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
The payment of any dividends from ACE Global Markets or its subsidiaries
would be subject to applicable United Kingdom insurance law including those
promulgated by the Society of Lloyd's. No dividends were received from ACE
Global Markets during fiscal 1999 or during the first six months of fiscal
2000 and the Company does not anticipate receiving dividends from ACE
Global Markets during the remainder of fiscal 2000. ACE INA has issued debt
to provide partial financing for the ACE INA acquisition and for other
operating needs. Cash flow requirements to service this debt are expected
to be met primarily by upstreaming dividend payments from ACE INA's
insurance subsidiaries. During the six months ended June 30, 2000, INA
Holdings received dividends of $50 million from its subsidiaries. Under
various U.S. insurance laws to which ACE INA's U.S. insurance subsidiaries
are subject, ACE INA's U.S. insurance subsidiaries may pay a dividend only
from earned surplus subject to the maintenance of a minimum capital
requirement, without prior regulatory approval. ACE INA's international
subsidiaries are also subject to various insurance laws and are also
subject to regulations in the countries in which they operate. These
regulations include restrictions that limit the amount of dividends that
can be paid without prior approval of the insurance regulatory authorities.
No dividends have been received by ACE Limited from ACE INA during the six
months ended June 30, 2000.
The Company's consolidated sources of funds consist primarily of net
premiums written, investment income, and proceeds from sales and maturities
of investments. Funds are used primarily to pay claims, operating expenses
and dividends and for the purchase of investments.
The Company's insurance and reinsurance operations provide liquidity in
that premiums are normally received substantially in advance of the time
claims are paid. The Company's consolidated net cash flow from operating
activities was $(204) million for the six months ended June 30, 2000,
compared with $71 million for the six months ended June 30, 1999. Cash
flows are affected by claim payments, which due to the nature of the
Company's operations, may comprise large loss payments on a limited number
of claims and therefore can fluctuate significantly from year to year. The
irregular timing of these loss payments, for which the source of cash can
be from operations, available net credit facilities or routine sales of
investments, can create significant variations in cash flows from
operations between periods. Loss and loss expense payments amounted to $1.7
billion and $532 million for the six months ended June 30, 2000 and 1999,
respectively. The substantial increase in loss and loss expense payments is
a result of the inclusion of paid losses from ACE INA. For the year ended
December 31, 1999 and fiscal years ended September 30, 1998 and 1997, net
losses and loss expense payments amounted to $2.4 billion, $584 million and
$422 million respectively.
On July 2, 1999, the Company completed the ACE INA acquisition for $3.45
billion in cash. The Company partially financed the transaction with
commercial paper issuance with a current annualized cost in the range of
6.5 to 7.0 percent. The commercial paper offerings are backed by line of
credit facilities, which were originally arranged in connection with the
ACE INA Acquisition.
In August 1999, commercial paper issuance noted above was reduced using the
net proceeds of an $800 million senior debt issuance. In December 1999, the
commercial paper outstanding was reduced using the net proceeds from the
issuance of $300 million in aggregate principal amount of unsecured
subordinated notes maturing in December 2009, and the net proceeds of a
$100 million trust preferred securities issue. These trust preferred
securities mature on December 31, 2029, but the due date may be extended
through December 31, 2048. Distributions on the trust preferred securities
are payable quarterly at a rate of 8.875 percent. The sole assets of the
trust consist of subordinated debentures of ACE INA. The Company has
guaranteed the payment obligations with respect to the trust preferred
securities and underlying subordinated indenture. On March 31, 2000 the
commercial paper outstanding was reduced using the net proceeds from the
issuance of $300 million in capital securities. These capital securities
mature on April 1, 2030, and the due date may not be extended.
35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
Distributions on the capital securities are payable semi-annually at a rate
of 9.70 percent. The sole assets of the trust consist of subordinated
debentures of ACE INA. The Company has guaranteed the payment obligations
with respect to the capital securities and underlying subordinated
indenture. The interest payments on the senior debt, the unsecured
subordinated notes, the trust preferred securities and the capital
securities which were all issued by ACE INA, are tax deductible.
On April 12, 2000, the Company's commercial paper outstanding was reduced
using the net proceeds from the issuance of $300 million FELINE PRIDES
which consist of a share of the Company's 8.25 percent Cumulative
Redeemable Preferred Shares, Series A, liquidation value $50 per share, and
a purchase contract which requires the holder to purchase on May 16, 2003
for $50 a number of the Company's ordinary shares determined as provided in
the purchase contract. On May 8, 2000, exercise of the underwriters'
over-allotment option with respect to the offering of the FELINE PRIDES
resulted in additional net proceeds of $11 million which was used to reduce
the Company's commercial paper borrowings. The Preferred Shares are
mandatorily redeemable by the Company on June 16, 2003. Under the purchase
contracts, a minimum of 11.8 million ordinary shares and a maximum of 16.4
million ordinary shares of the Company will be issued.
During the quarter, an additional $103 million of the Company's outstanding
commercial paper was repaid from internally generated funds.
The issuance of the FELINE PRIDES represents the last step in securing
permanent financing related to the ACE INA acquisition. Any remaining
commercial paper will either remain outstanding, be repaid from internal
cash flow or be refinanced over time.
On December 30, 1999, the Company completed the acquisition of ACE
Financial Services for aggregate consideration of $110 million in cash and
approximately 20.8 million ACE ordinary shares. The cash used to finance
the acquisition was generated from internal sources.
On January 14, 2000 and April 14, 2000 the Company paid quarterly dividends
of 11 cents per share to shareholders of record on December 31, 1999 and
March 31, 2000 respectively. On July 14, 2000 the Company paid a quarterly
dividend of 13 cents per share to shareholders of record on June 30, 2000.
The declaration and payment of future dividends is at the discretion of the
Board of Directors and will be dependent upon the profits and financial
requirements of the Company and other factors, including legal restrictions
on the payment of dividends and such other factors as the Board of
Directors deems relevant.
Fully diluted book value per share was $20.81 at June 30, 2000, compared
with $20.28 at December 31, 1999.
Both internal and external forces influence the Company's financial
condition, results of operations and cash flows. Claim settlements, premium
levels and investment returns may be impacted by changing rates of
inflation and other economic conditions. In many cases, significant periods
of time, ranging up to several years or more, may elapse between the
occurrence of an insured loss, the reporting of the loss to the Company and
the settlement of the Company's liability for that loss. The Company
believes that its cash balances, cash flow from operations, routine sales
of investments and the liquidity provided by its credit facilities
(discussed below) are adequate to meet the Company's expected cash
requirements.
36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (cont'd.)
Credit facilities
In May 2000, the Company renewed certain syndicated credit facilities. Each
facility requires that the Company and/or certain of its subsidiaries
maintain specific covenants, including a consolidated tangible net worth
covenant and a maximum leverage covenant. The facilities provide:
o An $800 million, 364-day revolving credit facility with ACE
Limited and various subsidiaries as borrowers and guarantors. This
facility is for general corporate purposes.
o A $250 million, five-year revolving credit facility with ACE
Limited and various subsidiaries as borrowers and guarantors. This
facility is for general corporate purposes and permits both loans
and letters of credit.
Each of the above facilities may be used as commercial paper recourse
facilities.
Tempest Re also maintains an uncollateralized, syndicated revolving credit
facility in the amount of $72.5 million, which is guaranteed by the
Company. At June 30, 2000, no amounts have been drawn down under this
facility.
As of June 30, 2000 ACE Financial Services was party to a credit facility
with a syndicate of banks pursuant to which the syndicate provides up to
$120 million specifically designed to provide rating agency qualified
capital to further support ACE Financial Services claims-paying resources.
The limit on this credit facility was increased from $100 million to $120
million during the quarter. The facility expires in January 2006. ACE
Financial Services has not borrowed under this credit facility.
In August 1996, ACE Financial Services entered into a credit agreement for
the provision of a $25 million loan, which was available for general
corporate purposes. As of June 30, 2000, this facility had been cancelled
and replaced with a $25 million loan under the group's 5-year syndicated
credit facility as described above.
In November 1998, the Company arranged a syndicated, partially
collateralized, five-year LOC facility in the amount of (pound)270 million
(approximately $411 million) to fulfill the requirements of Lloyd's for the
1999 year of account. This LOC facility requires that the Company and/or
certain of its subsidiaries continue to maintain certain covenants,
including a minimum consolidated tangible net worth covenant and a maximum
leverage covenant. On June 30, 1999, certain terms of this LOC facility
were renegotiated and the facility is now uncollateralized. The facility
was renewed in November 1999 at an increased amount of (pound)290 million
(approximately $441 million) to fulfill the requirements of Lloyd's for the
2000 year of account. ACE Financial Services maintains a (pound)48 million
(approximately $73 million) unsecured letter of credit facility with a bank
to fulfill their requirements at Lloyd's.
In September 1999, the Company along with ACE Bermuda and Tempest Re as
Account Parties and Guarantors arranged a syndicated, one-year LOC facility
in the amount of $430 million for general business purposes, including the
issuance of (re)insurance letters of credit. This LOC facility requires
that the Company and/or certain of its subsidiaries continue to maintain
certain covenants, including a minimum consolidated tangible net worth
covenant and a maximum leverage covenant.
37
ACE LIMITED
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits.
10.1 Amended and Restated Five Year Credit Agreement among ACE Limited, ACE
Bermuda Insurance Company Ltd., ACE INA Holdings, Inc. and ACE
Financial Services, Inc., Mellon Bank, N.A., Bank of America, N.A.
and The Chase Manhattan Bank, dated May 8, 2000.
10.2 Amended and Restated 364 Day Credit Agreement among ACE Limited, ACE
Bermuda Insurance Ltd., Tempest Reinsurance Company Ltd., ACE INA
Holdings Inc., ACE Guaranty Re Inc., Bank of America, N.A., The Chase
Manhattan Bank and Morgan Guaranty Trust Company of New York dated
May 8, 2000.
27. Financial Data Schedule
38
SIGNATURES
Pursuantto the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACE LIMITED
--------------------------------------------
August 14, 2000 Brian Duperreault
--------------------------------------------
Brian Duperreault
Chairman and Chief
Executive Officer
August 14, 2000 Robert Blee
--------------------------------------------
Robert A. Blee
Chief Accounting Officer
39
EXHIBIT INDEX
Exhibit Description Numbered
Number Page
10.1 Amended and Restated Five Year Credit Agreement among ACE
Limited, ACE Bermuda Insurance Company Ltd., ACE INA Holdings,
Inc. and ACE Financial Services, Inc., Mellon Bank, N.A.,
Bank of America, N.A. and The Chase Manhattan Bank, dated
May 8, 2000.
10.2 Amended and Restated 364 Day Credit Agreement among ACE Limited,
ACE Bermuda Insurance Ltd., Tempest Reinsurance Company Ltd.,
ACE INA Holdings Inc., ACE Guaranty Re Inc., Bank of America,
N.A., The Chase Manhattan Bank and Morgan Guaranty Trust Company
of New York dated May 8, 2000.
27. Financial Data Schedule.
40